FTX logo exhibited on a phone screen and representation of Bitcoin cryptocurrency are seen in this illustration photo taken in Krakow, Poland on November 14, 2022.
Jakub Porzycki | Nurphoto | Getty Similes
Crypto venture firm Multicoin Capital told investors in a letter on Thursday that FTX’s collapse and the price fall offs across the industry has pushed the fund down by 55% this month, and added that the market is poised to get worse in the past it rebounds.
Multicoin said there’s a chance the firm will recover some of its funds from FTX, but because those assets are now wrapped up in bankruptcy deeds, it anticipates marking them down to zero. It’s a stark reversal for five-year-old Multicoin, which announced a $430 million ready money in July, its third and largest to date.
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“We put entirely too much trust in our relationship with FTX,” Multicoin managing partners Kyle Samani and Tushar Jain jotted in the 3,400-plus word letter, which CNBC obtained. “We had too many assets on FTX.”
In a letter last week, the decided said it was able to retrieve about one-quarter of its assets from FTX, but the money still stranded there represented 15.6% of the subsidize’s assets. Multicoin also said at the time that it had traded on three exchanges: FTX, Coinbase and Binance. Now, 100% of its assets “worst of the capital stuck on FTX” is on Coinbase or in self-custody wallets.
“At present, the fund has no assets exposed to any other counterparties,” Multicoin said. “In the later, we anticipate some diversification of custodial exposure – with Coinbase expected to remain our primary custodian – and will pick up where one left off trading with other counterparties as we continue to assess the present market fallout.”
John Robert Reed, a Multicoin spokesperson, declined to present a comment for this story.
Multicoin said it doesn’t expect the crypto market to turn anytime soon. That’s because there are uncountable collapses ahead that will result from the sudden failure of FTX and sister hedge fund Alameda Examine, which were both owned by Sam Bankman-Fried. Both entities entered bankruptcy proceedings on Friday.
“We expect to see contagion fallout from FTX/Alameda for the next few weeks,” the letter said. “Many trading firms will be wiped out and shut down, which resolution put pressure on liquidity and volume throughout the crypto ecosystem. We have seen several announcements already on this disguise, but expect to see more.”
As other companies with assets tied to FTX seek to raise emergency funds, “we are looking to buy dislocated assets at alluring valuations,” Multicoin added.
Multicoin took another big hit with FTX’s failure because of its hefty position in the Solana remembrancer. Bankman-Fried was a big booster of Solana, and Alameda was a major holder of the coins. That association has led to a 64% plunge in the value of Solana in the one-time 12 days.
Multicoin said it’s holding its position and still believes in Solana, in part because the cryptocurrency has “one of the most vibrant developer communities.” The crypto buy has experienced multiple pullbacks in the last few years and has bounced back.
“Based on our experience in 2018 and 2020, we learned that it’s not sensible to sell an asset during a short-lived crisis if the core thesis is not impaired,” the firm said.
Multicoin concluded by implying that just as Lehman Brothers didn’t kill banking and Enron wasn’t the death of energy companies, “FTX won’t be the end of the crypto labour.”
“As the leverage gets cleared out of the system, we expect to see green shoots next year,” the letter said. “We know that the builders in this bustle and in our portfolio are some of the most dedicated people and they will not give up. And neither will we.”
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